Activity across the G10 FX was still fairly disjointed in thin trade. The dollar was mixed overall, holding ground across the European majors, but against JPY and the commodity bloc currencies it came under pressure. Japanese data was encouraging for the region as July trade revealed a rise in exports and imports, which forced the deficit out to Y1.024 tln. Dallas Fed Fisher backed widespread expectations of policy tapering when he told FOX Business that the rise in interest rates reflects awareness that there is no QE infinity and added that the Fed will dial back stimulus. Meanwhile, PBoC chief Zhou said it will maintain prudent monetary policy in H2 and fine tune policy if needed, which was in line with the recent stance. However, the China Securities Journal said the government policy focus has shifted now to drive growth.

[EUR, USD]EUR-USD traded within a tight range in Asia. After the 1.3400 level held on Friday there was light interest to sell the EUR on upticks and it edged off 1.3343 highs to trade into 1.3320 by the time early European accounts joined the market. Recent CFTC speculative data revealed that USD longs had cut back positions, which may give the EUR more scope to trade at softer levels in the near-term. However, in recent sessions the risk off tone has not benefited the dollar as Fed taper expectations fueled concerns over Treasury holdings and the outlook for U.S. stocks, which was a negative influence in the latter part of last week. On an intra-day basis, the 1.3300 level may be tested early on, though option flows are tipped on dips, while offers have been re-established ahead of long-term resistance at 1.3400-20.

[USD, JPY]USD-JPY consolidated close to 97.50 over the Tokyo close after experiencing two-way action in thin trade. Activity reflected market indecision and a the lack of interest after last week's Obon holiday. The wider than expected Japan trade deficit boosted USD-JPY to 97.85. However, the breakdown was encouraging. July trade widened to Y1.024 tln versus expectations of Y785.6 bln after exports rose 12.2% y/y and imports rose 19.6% y/y. USD-JPY movement into 98.00 was capped by fund offers and weakness across regional stocks and it headed back to 97.35. Short term sentiment is still skewed to selling pressure on upticks following last week's break to 97.05. However, the recent rise in U.S. yields, rather than helping USD-JPY, has weighed as it forced investors to cut exposure to stocks. There are also some concerns over holdings of Treasuries when the Fed starts to taper policy.

[GBP, USD]Cable is well supported ahead of 1.5600 as the U.K. economic outlook continues to keep the downside in check. This has been the case since the start of the month. The upturn in U.K. money market rates has seen a pick up in fund activity as investors search for yield, though investors have pared back gilt holdings. The BoE revealed the details of its forward policy guidance, but there are doubts over the current stance given the pace of improvement in economic activity. From a short term perspective Cable gains on the mid-June peak at 1.5750 may be a struggle despite increased demand for topside strikes via the options market.

[USD, CHF]EUR-CHF is stable around the 1.2350 area. Based on recent movement consolidation looks likely on an intra-day basis. Last week it failed to sustain a move through 1.2425 for two consecutive sessions, which flagged a potential turning point and it headed back into the 1.2330 area. Good long-term buyers were noted on dips, though the upside is likely to be limited from 1.2390-00 in the near-term.

[USD, CAD]USD-CAD is stable ahead of 1.0300. After briefly moving under 1.0300 last week it steadied. There was good buying interest, which put a floor in place, while the wobble in global equity markets has also weighed on CAD$. There have also been a couple of notable Canadian data misses of late, which should keep bias with higher levels. However, offers have been re-established from 1.0370-80 since it rejected levels over 1.0400.